The forecast of lower production of sugar in India may be bullish for domestic prices, helping mills to recover lost ground in the last two years when they were forced to sell below cost of production. Traders, analysts, food processing companies and sugar mills predict the output for 2016-17 season (October-September) at about 22.5 million tonnes, down from previous year’s 25.1 million tonnes. They also expect that India will have to import at least 1 million tonnes of sugar next season to meet domestic demand, which is estimated at 26 million tonnes. “Prices will be bullish,” said Somnath Chatterjee, divisional manager (procurement and logistics) of ITC’s food division. The production will be between 22.5 million tonnes and 23 million tonnes, he told Financial Chronicle. The pipeline will be dry in November he said, adding that the current rate in Maharashtra is lower than prices of Uttar Pradesh, as mills are being forced to sell due to the stock limit order. As assembly elections will be held in Uttar Pradesh in 2017, which has not changed the sugarcane price for the last three years, there is a possibility of increase in the state advised price (SAP) to about Rs 320 a quintal for the next season, said a state’s mill owner. The current SAP is Rs 280 a quintal, which is binding on mills to purchase cane from farmers. Cane pricing in Uttar Pradesh will be crucial for the sustainability and profitability for the UP-based sugar mills, said ICRA’s senior vice president Sabyasachi Majumdar. “While the UP government has maintained the SAP, the significant increase in the domestic sugar realisations is likely to act as a trigger for an increase in the SAP during SY2017, especially given that the state assembly elections are due in 2017,” he said in a statement. According to the credit rating agency, sugar prices have increased from around Rs 31,500 per tonne in March to Rs 36,000 a tonne in August and September. This has been supported by an expected decline in sugar production, actual decline in the domestic sugar stocks during the current year and also a global deficit scenario, which has driven up international prices. Any further increase in prices in the next 3-4 quarters would depend on expectations of sugar production during the current sugar year and government action on price control measures, ICRA said, adding they are likely to remain firm given the tight domestic situation. India may have to import 1 million tonnes of sugar next year, said Benoit Boisleux, a trader with global commodities trading firm, Louis Dreyfus. The country’s production may be 22.5 million tonnes because of lower planting, he said at the Kingsman Asia Sugar Conference on Wednesday. However, Indian Sugar Mills Association (ISMA) released the first estimate of sugar production, which projected a higher volume at 23.37 million tonnes on fall in sowing area of sugarcane. It also said there is no need to import sugar as the country has enough stock to meet domestic demand. ISMA has estimated the total cane acreage at 49.99 lakh hectares, which is about 5 per cent less than 2015-16 season. Uttar Pradesh will be the top producer of sugar with an expected output of 7.66 million tonnes, up from 6.84 million tonnes in 2015-16. Maharashtra may slip to second position with a production of 6.27 million tonnes next season, 25 per cent less than actual production of 8.41 million tonnes a year ago.
With a carry over stock of 7.5 million tonnes from 2015-16 season and an expected production of 23.4 million tonnes in 2016-17, there will be enough sugar available next season to meet the domestic demand, ISMA said. It has pegged domestic consumption at 25.6 million tonnes.